Many brands are offering loyalty programs to reward customers’ fidelity and capture data about their guests. This blog introduces many of the legal problems associated with implementing and running loyalty programs.

Q. What is the first thing a brand should do to create a legal loyalty program?

A. The first step is to vet and document the program’s structure. The program’s terms and conditions, when properly publicized, will serve as a binding contract with the consumer. Without those terms and conditions, the brand risks misunderstandings with consumers that can turn into legal liabilities. (In 2016, Staples settled for $2 million a class action lawsuit questioning the way it calculated reward points.) The terms should explain how the consumer earns and redeems points. Tiered programs need special attention for clarity.

Q. Are there legal issues associated with choosing a name for the loyalty program?

A. Some program names (“e.g. BRAND Rewards”) are so generic that no separate clearance may be necessary. Others cover new branding territory. These require a full trademark search to prevent third party trademark infringement. Brands should also consider whether they want to invest in protecting the name of their program with trademark registrations in the United States and abroad.

Q. What about data collection? How does that impact loyalty program set-up?

A. Another crucial step of setting up the program is data mapping. What data are you collecting? Who has access to the data (particularly third-party vendors and white labeled third party apps)? How is the data being stored and for how long? In particular, California’s new privacy statute, the California Consumer Privacy Act of 2018, is quickly establishing data mapping as a best practice. Brands should start putting data mapping systems in place immediately (even if they do not have loyalty programs). Data mapping becomes even more important if the brand has any European data subjects so they can comply with GDPR. Loyalty programs need to be consistent with brand privacy policies. Those policies may need a rewrite timed with the launch of the loyalty program. (A full examination of data privacy issues is beyond is the scope of this blog post.)

Q. Can the program managers alter redemption values or make other structural changes over time?

A. Because loyalty programs are rarely static, the terms should be drafted proactively from the beginning to allow for changes or even termination. While program alteration clauses have generally been upheld in courts, marketers want to be careful with changes on redemption values without notice, particularly if they are retroactive. This is true even if the program terms permit any kind of change. In 2016, a class action lawsuit against AutoZone Parts challenged a rewards program for this very reason, and the case is still pending. Whenever a brand wants to shift the redemption values and structure of its loyalty program, it should do a complete legal vetting of the change. The legal and marketing team would balance brand rights based on the program’s terms with the practical impact any change would have on program participants.

Q. What current trends are shaping loyalty programs?

A. The first is gamification. Programs often offer a multitude of ways to earn points, through sweepstakes, contests, or auctions. Those programs are subject to 50 states’ sweepstakes and gambling laws and need legal review. A second trend is charitable giving. Some programs allow their customers to “gift” rewards to charities. In so doing, the brand may become a commercial co-venturer under many states’ laws. These laws may require registration, bonding, or specific advertising or contractual requirements. A third trend is recruiting loyalty program participants to serve as brand influencers. The legal issues here range from complying with FTC Endorsement Guidelines to shielding the brand from unsubstantiated claims. In addition, before a brand promotes its most “loyal” consumer, it may want to vet that consumer with complete background checks. In addition, an influencer spokesperson agreement with that customer is essential.

Q. What if my brand is a franchise? Are there special considerations for creating loyalty programs?

A. Yes. The franchise agreement needs to be crafted carefully if franchisors want to mandate franchisees’ participation or to require franchisees fund program costs. In addition, general provisions in these agreement allowing changes to “systems standards” or “rules of operation” may not be sufficient to allow franchisors to change the terms of the loyalty program down the road. Franchisors will also want to ensure that franchisees are sending out marketing messages that are consistent with the program’s terms.

Q. Who might challenge a brand’s loyalty program?

A. The danger lies in many places. Consumers and class action attorneys may file suit if there are any gaps in uniformity or any perceived unfairness. State Attorneys-General, the Federal Trade Commission, or industry watch groups may investigate to ensure the program is neither deceptive nor unfair. In addition, franchisees may complain about being forced to participate in loyalty programs if their franchising agreement is improperly drafted.

Q. What kinds of loyalty program problems have resulted in litigation?

A. Too often, the program’s marketing materials do not match the program’s terms and conditions. The result often is consumer confusion and frustration, leading to litigation and challenges for unfair or deceptive advertising. In 2016, the New York Attorney General settled with Walgreens/Duane Reade for $500,000 in civil penalties, fees, and costs, along with requirements that it create consistent information about its Balance Reward Points Program.

Also, be careful of advertising the perks of the program with descriptions like “It’s just like cash” or “it’s like getting it for free.” The National Advertising Division of the Council of Better Business Bureaus recommended that Office Max and Staples alter such advertising claims. It reasoned that free merchandise and the chance to earn points are substantially different offerings. In addition, as of the date of this writing, litigation is currently pending, in California against Kohl’s Department Stores based on claims that “Kohl’s Cash” is equivalent to real money when used in-store.

It is also important to be clear that points have no redeemable cash values or the program could be subject to money transmission statutes, escheat laws, etc. These issues remain somewhat unsettled law, dependent on the facts. In September, 2018, a jury in the Superior Court of Delaware found Overstock.com guilty of hiding approximately $3 million in unpaid escheat claims.

Q. How else can advertising for the loyalty program create legal liability?

A. Statutes like CAN-SPAM or the TCPA have very specific requirements for this kind of marketing. Email or text message marketing for the program that fails to meet statutory requirements can also create significant risk of financial liability.In addition, failure to accurately describe the conditions and limits of any offer can result in legal trouble. For example, in 2013, the Missouri Attorney General settled a suit with Walgreens because, in part, its shelf tags were not clear about how to redeem points.

There is also pending litigation in several jurisdictions relating to the Americans with Disabilities Act (ADA)’s applicability to loyalty programs’ websites and apps. As of the date of this writing, the legal community awaits a decision from the 11thCircuit on the ADA’s applicability to a website in Gil v. Winn-Dixie Stores, Inc. Previously, the Container Store lost in the First Circuit when the National Federation of the Blind challenged its loyalty program as discriminating against blind consumers.

Q. Is there a way to avoid class action litigations?

A. While it is not fully settled law, for now, it appears that a well-drafted arbitration clause that includes a class action waiver would achieve this goal. Again, the law is shifting in this area, so it is crucial to stay abreast of developments through legal counsel. In addition, a brand’s c-suite executives will want to make a well-informed decision when selecting an arbitration provider. The American Arbitration Association, for instance, has a separate set of procedural rules for business/consumer disputes.

Q. It seems like there are many issues for a marketer to think about. Is all this too difficult to implement?

A. There are many legal issues embedded in loyalty programs. And frequently, the third-party apps who are “selling” these programs may not consider all these legal risks. (That’s a reason to review your contracts with those vendors carefully.) But if the brand involves legal from the concept stage, there is no reason to avoid a loyalty program.

Are you interested in setting up a loyalty program to reward your customers? Or do you have a loyalty program and are concerned about shielding yourself from legal liability? Contact Hilfer Law today for a free consultation.

]]>Hilfer Law is excited to announce that ROSE Arbitration has asked Kyle-Beth Hilfer to join its panel of arbitrators. ROSE Arbitration offers an “IPRbitration” arbitration procedure to challenge a patent’s validity. This patent arbitration process offers an efficient alternative to the Inter Partes Review (IPR) process at the Patent Trial and Appeal Board (PTAB).

The IPR Process

The IPR process came into effect with the 2012 America Invents Act. It allows a person or entity to challenge patent validity because its claims were already obvious or unoriginal based on prior art.With the advent of the IPR process, a challenger no longer had to endure a jury trial for a determination of patent validity. Instead, the PTAB would offer a hearing and make a decision. The IPR process was designed to be more efficient than court challenges, saving time and money.

Supreme Court SAS Decision

A recent Supreme Court decision, however, has impeded the practicality of the IPR process. In SAS Institute v Iancu, the Court held that all petitioner’s claims must receive full adjudication at the PTAB, including a final ruling. Practically, then the SAS case ended the PTAB’s partial institution practice. Before SAS, only some claims originally challenged would have to be adjudicated. Going forward, the patent holder will have to defend all asserted patent claims.

As a result of this full adjudication requirement, the PTAB will move slower and handle fewer cases. Appeals are also going to be more costly and slower to reach resolution. David Newman of ROSE Arbitration predicts that the IPR process with appeal could take as long as seven years.

In addition, the IPR process costs have already increased. After the SAS decision, the USPTO announced that fees for PTAB trials would increase by about 25%, up to nearly $20,000. The USPTO also noted that post-SAS, the PTAB will only institute an IPR proceeding when a petition challenges all patent claims.

Advantages of the Arbitration Process for Challenging Patents

Patent arbitration offers a streamlined solution for parties attempting to resolve patent disputes and obtain an IPR-like remedy. Most importantly, the patent opposer may still challenge only part of the claims at issue if the challenge happens in arbitration. Here are several other benefits:

Parties can agree to customize the arbitration process to fit their needs.

A patent arbitration process can track PTAB IPR rules.

Patent arbitration offers a condensed timeline (typically in six months or less) and less costly.

Parties can agree to go to arbitration at any time.

Parties to a patent arbitration need not file a petition for institution with the PTAB to resolve their disputes.

Arbitration offers a private process with full confidentiality.

Once a patent arbitration results in a decision, the USPTO will recognize the validity of such an arbitration award.

For companies no longer willing to spend hundreds of thousands of dollars on an IPR process, the ROSE “IPRbitration” process offers an appealing alternative.

Kyle-Beth Hilfer’s Arbitration Practice

Kyle-Beth Hilfer has been an arbitrator since the early 1990s. She has served as sole arbitrator, chairperson of panels, and panel member on numerous arbitrations (including large complex cases) with damages ranging from thousands of dollars to multimillion-dollar awards.

Kyle-Beth has heard disputes relating to all types of intellectual property and trade secrets. In recent years, she has delved into nuanced intellectual property transactions and disputes arising out of new and emerging technologies. In the process, she has managed complex damages and royalty calculations, issues of ownership, liability, and fair use, causation, fraud, fiduciary duties, warranties, restrictive covenants, and contractual issues.

As an experienced arbitrator, Kyle-Beth has also has handled many procedural matters, including arbitrability, discovery disputes, privilege, statute of limitations, preclusion, and sanctions. She has managed both in person and teleconference hearings. Dedicated to an efficient and fair arbitration process, Kyle-Beth employs an active case management style.

Kyle-Beth is excited to add ROSE Arbitration to the list of administrators for which she offers arbitration services.

]]>https://kbhilferlaw.com/hilfer-law-expertise-sought-patent-arbitration-process/feed/0Spinning Wheel Games: How to Keep Them Legalhttps://kbhilferlaw.com/keep-spinning-wheel-games-legal/
https://kbhilferlaw.com/keep-spinning-wheel-games-legal/#respondMon, 13 Aug 2018 21:33:12 +0000https://kbhilferlaw.com/?p=1246Spinning wheel games are cropping up all over websites offering instant win prizes. Some brands also offer anyone who spins to win the additional chance enter into a grand prize sweepstakes drawing. The catch: the customer has to sign up for a newsletter or other marketing material. Several legal issues, revolve (sorry, pun intended!) around these spinning wheel games. To avoid violating sweepstakes and contest laws, brands should adopt some best practices.

Spinning wheel games are cropping up all over websites offering instant win prizes. Some brands also offer anyone who spins to win the additional chance enter into a grand prize sweepstakes drawing. The catch: the customer has to sign up for a newsletter or other marketing material. Several legal issues, revolve (sorry, pun intended!) around these spinning wheel games. To avoid violating sweepstakes and contest laws, brands should adopt some best practices.

Where are these spinning wheels coming from? Typically, they come from a third party app developer who may not even be in the United States. The developer offers a template that is easy to install on a website and promises to drive traffic. In exchange, the app developer may receive payment based on the number of spins the wheel gets. The developer appears to offer a turnkey solution to generating traffic. On closer examination, however, these apps often use templates that are barely customizable and often are not vetted with American sweepstakes law.

Many marketers fail to recognize these spin to win games for what they are: games of chance sweepstakes. To protect the brand, the game should be accompanied by a set of rules. Even if the prizes are low-end, there should be abbreviated rules that cover at least eligibility, the entry period, odds of winning, full prize descriptions, and methodology for claiming a prize. The rules should also protect the brand in the event the spinning wheel malfunctions. The rules and the on-screen experience should also connect entrants to the brand’s privacy policy. Consider also whether the prizes would hit the threshold for required registration and bonding in Florida and New York.

The odds of winning are often a trouble spot when setting up a spinning wheel game. An algorithm on the back end usually determines how often a winning space might come up. That algorithm determines the odds of winning a given prize. The problem is that many marketers are not understanding how the algorithm works and do not know how to state the odds of winning, as required by law. Even more confusingly, marketers often want to limit the number of prizes. Why? if the game goes viral, the brand does not want to be on the hook financially for too many prizes. Restricting the number of prizes, however, likely would render the odds of winning incorrect and compromise the legality of the game. All of these problems need to be sorted through and handled appropriately on both the backend and in the rules to ensure legality.

Another issue is requiring entrants to subscribe to email marketing lists. Per 50 states’ sweepstakes laws, you cannot ask someone to give money or something of value or consideration (substantial time or effort) in order to have a chance to win a prize. Does requiring a person to receive your newsletter before she can spin to win constitute illegal consideration? What if you require the person to stay subscribed to your emails for a period of time? The latter is particularly troubling. Can the right disclosures obviate the legal risk? Again, it depends on the particular program’s execution and how the consumer experiences the disclosures. In addition, marketers need to ensure that their e-newsletters and other marketing materials are CAN-SPAM compliant before linking a contest to them.

A final problem with these spinning wheel apps is that the templates are often rigid. They may not allow for sufficient customization. Many of the apps do not show the entire wheel to the consumer, leading to the potentially false impression of higher chances of winning something of value. The templates also may not have enough room to disclose clearly and conspicuously the details of the game and prizes or to publicize the rules properly.

BEST PRACTICES:

Steps to take to protect your brand:

Consider your goals for using a spin the wheel game. If it is merely to gather email addresses, realize that many people will unsubscribe right after your first newsletter comes. Work with your sweepstakes attorney to determine what legal exposure you have and then decide if the game is worth the risk.

Draft rules for your spin to win game that protect your interests. Make sure to use disclosures to communicate the most important disclaimers and the existence of the rules. Experienced sweepstakes and advertising counsel can help you with these risk mitigation steps and ensure you meet the legal standard of “clear and conspicuous.”

Do not copy another brand’s rules. You do not know what kind of vetting that brand has done and what kind of risk it is willing to take. Also clear the name of your spin to win game so that it does not infringe on another brand’s trademark.

Consider limiting the length of your spinning wheel game and the value of your prizes to mitigate against the game going viral. A viral promotion can run way over budget and also implicate Florida and New York’s registration and bonding requirements.

Look carefully at your contract with the spinning wheel app developer. What warranties and indemnities are there to protect you if the wheel goes haywire? How much customization does the contract allow?

Check your insurance policy to make sure you have coverage for violations of sweepstakes and advertising laws. Many policies have exclusions in these areas.

If you are considering running a spinning wheel sweepstakes or contest for your brand and want to understand the legal issues, click here to request more information.

]]>https://kbhilferlaw.com/keep-spinning-wheel-games-legal/feed/0Why GDPR -EU’s New Privacy Law- Matters to American Companieshttps://kbhilferlaw.com/why-gdpr-matters-american-companies/
https://kbhilferlaw.com/why-gdpr-matters-american-companies/#respondMon, 16 Apr 2018 15:10:02 +0000https://kbhilferlaw.com/?p=1237In the wake of the Cambridge Analytica hack of Facebook, Americans are becoming more concerned about their data. While we await the fallout in terms of regulation here in the USA, companies should be aware that Europe’s General Data Protection Regulation (GDPR) is fast approaching on May 25, 2018. GDPR outlines specific guidelines for handling EU data. Think it’s a European problem and does not apply to your company? Think again. GDPR will affect any company that collects or monitors data on an individual in the EU.

]]>In the wake of the Cambridge Analytica hack of Facebook, Americans are becoming more concerned about their data. While we await the fallout in terms of regulation here in the USA, companies should be aware that Europe’s General Data Protection Regulation (GDPR) is fast approaching on May 25, 2018. GDPR outlines specific guidelines for handling EU data. Think it’s a European problem and does not apply to your company? Think again. GDPR will affect any company that collects or monitors data on an individual in the EU.

Why should I care if I don’t have EU customers?

If you transfer any data across borders to Europe, you will care about the GDPR. For many US companies, GDPR may not be an issue, but it may represent a set of best practices to follow as our Congress and regulators prepare for regulation. For example, if you collect a consumer’s email from a sweepstakes entry but then use it for email marketing down the road, that could be problematic in the EU after GDRP takes effect. What does that mean for your American customers? Applying GDRP’s ideals to your USA marketing plans and data collection can help you to avoid problems if and when there is a data breach of your American customers’ data. And to the extent that you are struggling to keep up with 50 states’ laws in the USA, trusted legal advisors and data security team can help you to find the highest common denominator.

What kind of data does the GDPR cover?

The GDPR is the EU’s new privacy regulation that seeks to protect individuals’ data. The data covered ranges from basic personally identifiable information (name, address, email, etc.) (“PII”) to even more personal PII (medical data, bank details, social media information, etc.). The GDPR further prevents the collection of political opinions, health status, race, and other sensitive PII without explicit consent from the individual. The GDPR applies not only to advertisers but also to search engine companies, credit card companies, shipping companies, etc. who are tracking your searches and data on your preferences with every search and purchase you make on the Internet.

What is in the GDPR for EU consumers?

The GDPR establishes a “Bill of Rights” for individuals. It asserts that individuals have a right to be informed about what data a company is collecting and why they are collecting it. They also have the right to object and to ask a company to erase their PII, cease distribution of the PII, and prevent third party partners from using the PII. Individuals can also demand corrections to inaccurate PII.

What does the GDPR require broadly?

The GDPR requires strict data protection and data breach notification. Organizations that collect large amounts of PII from EU citizens or regularly monitor EU consumers’ activities must appoint a data protection officer who regularly communications with other c-suite individuals. It also requires companies to comply with requests to erase personal data and to notify customers promptly of data breaches.

What are penalties for non-compliance?

The GDPR has large penalties for non-compliance. Fines may range from 2% to 4% of a company’s annual global revenue or 20 million Euros, whichever is greater, depending on the facts of a given case.

What should companies do now?

First, determine if you are collecting data from EU customers. Are you actively marketing to EU consumers? Do you have email addresses or IP addresses in your possession from EU locations? If it is just a small number, can you easily segregate those and avoid marketing to them until you have a plan in place?

Second, do an inventory of the kind of PII you are collecting. Identify risk depending on the type of PII you have and what kind of consent you have obtained to collect it. Also determine how you store the PII, and how you or your partners use the PII.

Third, review your privacy policies and data governance policies to ensure the safe handling of PII. Look closely at who has access within your organization and outside your organization. Set up protocols for data management and for a data breach.

Fourth, ensure you are using encryption, pseudonymization, and anonymization, the three techniques for data protection enumerated in the GDPR. As you review the PII you have, retain only what you need. Really question why you need data before you decide to keep it or collect it in the future.

Fifth, set up procedures to audit and monitor. Just as in the United States, showing a regulator that you have practical procedures in place that catch problems can be persuasive in the event of a data breach. Your auditing plan should continue to ensure that the least number of people have access to PII and that the PII controls remain strong throughout your systems.

Sixth, prepare for a data breach. It will happen. You should have an incident response plan that you have tested and can implement immediately. If there’s a breach, you should know how to determine what data was exposed, how to find the point of breach, who you need to notify and when.

]]>https://kbhilferlaw.com/why-gdpr-matters-american-companies/feed/09 Common Legal Problems in Restaurant Marketinghttps://kbhilferlaw.com/9-legal-issues-restaurant-marketing/
https://kbhilferlaw.com/9-legal-issues-restaurant-marketing/#respondMon, 26 Feb 2018 23:59:44 +0000https://kbhilferlaw.com/?p=1202Restaurant marketing has become commonplace, but restaurant owners may not realize their efforts may create legal risk. Here are nine common legal problems that operators may confront in restaurant marketing.

]]>Restaurant marketing has become commonplace, but restaurant owners may not realize their efforts may create legal risk. Here are nine common legal problems that operators may confront in restaurant marketing.

Trademarks: Even a local single operator may want to protect its name. The best time to do this is before the restaurant launches. Without doing the proper searching, a restaurant may find itself on the receiving end of a cease and desist letter from someone else in the restaurant services business that has prior rights. Even if the restaurant name is clear and protected, restaurant marketing now occurs in the shape of branded goods, from coffee mugs to t-shirts. New trademark applications should be filed to afford maximum protection to the brand. And let’s not forget that certain hashtags may seem innocuous but are actually registered trademarks whose owners enforce them. (Yes, restaurants have been sued for using #TacoTuesday.)

ADA Website Accessibility: Many restaurants (even small single operators) are finding themselves sued for failure to be compliant with the Americans with Disabilities Act (ADA). Class action attorneys are filing lawsuits against restaurants whose websites do not make special provisions for the blind, for example. If the website invites patrons to review menus, make reservations, or place orders, the argument is that the disabled are disenfranchised from using the website. While the law is unstable in this area, there would be a substantial expense involved with defending such a lawsuit. Every restaurant should be proactive to get ahead of this problem and bring its restaurant into ADA compliance.

Gift Cards: Many restaurants sell gift cards to patrons. There are numerous state laws regarding gift cards, particularly as they relate to disclosures, dormancy/expiration provisions, fees, and unused cards. Restaurateurs should ask if do a compliance check. Even if the restaurant is relying on a third party to administer its gift card programs, the ultimately liability could fall on the restaurant for failure to comply with the laws. Of course, contracts with vendors should be checked to ensure that appropriate warranties and indemnities are in place. In addition, if the restaurant is using any loyalty programs to earn gift cards or points, it could be inviting legal investigation by a state Attorney General if the loyalty program is not implemented properly.

Sweepstakes: Sweepstakes, contests, and other giveaways are popular restaurant marketing tools to maintain patronage and spread the word about a restaurant. Many restaurateurs, however, are not aware that sweepstakes are subject to fifty states’ laws. To ensure that a state Attorney General does not see a promotion as illegal gambling, it is essential that a prize promotion has the right structure. The promotion should also have rules to protect from consumer lawsuits. Finally, the Federal Trade Commission (FTC) is also paying close attention to prize promotions that use hashtags to promote interest in the business. The FTC wants to see appropriate disclosures and hashtags that make it clear that the social media post is in exchange for a sweepstakes entry.

Charity Partnerships: In an effort to give back to the community, restaurant marketing teams may partner with charitable organizations to donate a percentage of sales. More than half of the states regulate such commercial co-ventures. Some even require registration and bonding. Failure to follow such best practices can result in financial penalties and public relations’ backlash. To avoid running afoul of these statutes, restaurateurs should vet these programs with legal counsel.

Social Media and Mobile Marketing: Restaurants should develop social media policies for employees to ensure they are meeting FTC and state requirements regarding endorsements/testimonials and to provide best practices that will reflect well on the brands. In addition, unless the restaurant marketing teams are producing all content (photos/videos, etc.) in house, restaurants will want some content curation guidelines. Even if content is being created in house, the restaurant will want to make sure it has the appropriate ownerships and licenses set up to avoid copyright infringement claims. Restaurants will also want to acquaint themselves with local laws regarding publicizing happy hours on social media. These vary from jurisdiction to jurisdiction. Finally, restaurants that email or text their patrons will want to make sure they have appropriate opt-in/opt-out options in place. Failure to do so can result in large financial penalties under CAN-SPAM and TCPA laws. In particular, the TCPA plaintiffs’ bar is very active and seeks large judgments for just one text that should not have been sent.

Privacy Policies: All restaurant websites should have terms of use and privacy policies, particularly when the restaurant is sharing data with delivery/ordering services. By collecting personal data from consumers, the restaurant must notify its customers of how it is using and securing the data. If the restaurant is part of a larger group, the entire group of restaurants should have consistent practices. Open the newspaper any day and stories of data breaches abound. The first line of defense against significant legal problems is having these policies upfront where consumers can see them.

3rd Party Delivery/Ordering Services: Many restaurants contract with third party delivery and ordering services (for example TryCaviar or PostMates or ChowNow). There have been issues with liability connected to both food damage and improper use of customer data. These issues can be addressed contractually with the third party service.

Music: If the restaurant is playing music of any kind, it will want to review its license agreements to ensure it has full permissions. Decided to add a live performer during happy hour? That may change the restaurant’s license requirements.

]]>https://kbhilferlaw.com/9-legal-issues-restaurant-marketing/feed/0Advertising Claims Substantiation: Legal, Marketing, and R&D Perspectiveshttps://kbhilferlaw.com/advertising-claims-substantiation-legal-marketing-rd-perspectives/
https://kbhilferlaw.com/advertising-claims-substantiation-legal-marketing-rd-perspectives/#respondWed, 07 Feb 2018 16:53:57 +0000https://kbhilferlaw.com/?p=1195Claiming your product is the best in the industry? Does it have superior service to a competitor? Or perhaps you want to claim that nobody can outperform your product? This kind of advertising copy requires claim substantiation. On January 25, 2018, Kyle-Beth Hilfer spoke at ACI’s Advertising Claims Substantiation Boot Camp. She moderated a panel discussing the key roles, responsibilities, and disciplines of the members of the claim substantiation team.

]]>Claiming your product is the best in the industry? Does it have superior service to a competitor? Or perhaps you want to claim that nobody can outperform your product? This kind of advertising copy requires claim substantiation. On January 25, 2018, Kyle-Beth Hilfer spoke at ACI’s Advertising Claims Substantiation Boot Camp. She moderated a panel discussing the key roles, responsibilities, and disciplines of the members of the advertising claim substantiation team.

Puffery is a purely subjective statement about the product that no reasonable person would believe is literally true. Examples: World’s best pizza. Serving the best coffee. Sometimes, it is not so clear whether a claim is puffery. In a recent case before the National Advertising Division of the Council of Better Business Bureaus (NAD), the tribunal found that “Best feeling sunscreen ever” reflected a tangible attribute in need of substantiation.

Pursuant to Section 5 of the FTC Act, commercial speech must be non-deceptive. Advertisers must be able to substantiate all reasonable interpretations of their express and implied claims before the advertising commences. The context of a claim is crucial for determining its net impression to the reasonable consumer. For example, if you claim to use superior products, showing a competitor’s product next to yours likely will require you to have substantiation against that competitor. If your study touts a specific product advantage that is not meaningful to the consumer, any implied superiority claim may be faulty. If comparing yourself to a competitor, you must take care that you are comparing similar products. Determining the scope of your advertising claims substantiation, then, is dependent on understanding how consumers understand the advertising message.

In addition, a brand is responsible for claims it disseminates as well as claims it adopts, in the form of testimonials from consumers. Advertisers must be careful to vet consumer content to ensure that product performance is not exaggerated. Otherwise, their advertising claims substantiation may be deficient for proving what the influencer says about product performance.In addition, if the endorsement or testimonial has been solicited in any way, the brand should mandate that the influencer disclose properly the material connection with the brand. To further meet these obligations, advertisers should have concrete understanding of the FTC’s Endorsement & Testimonial Guidelines.

The FTC and FDA require “competent and reliable scientific evidence” for advertising claims substantiation. Such evidence typically includes well-controlled, double blind studies that produce statistically and clinically significant and relevant results. The design of evidentiary studies may vary by category, geography, and the type of claim at issue. Industry standards, if they exist, may be helpful for designing a study, but sometimes, those standards are outdated. Generally, studies must have sound methodology for testing the actual products at issue. The test parameters must replicate actual consumer use of a product, and the findings must be relevant and meaningful to consumers.

The challenge for brands is to look at the testing they have to support claims, and if it is not above reproach, the marketing team needs to be creative. For example, it may be risky to offer a guarantee on consumer perceptions. Instead, a marketer could say that consumers will notice a difference.

Without proper advertising claims substantiation, a brand may face a legal challenge that its advertising is false or deceptive. The FTC, FDA, NAD, or state Attorneys-General may investigate or bring lawsuits. Competitors may bring challenges before the NAD or in court, and consumers may bring class action lawsuits.

A Marketer’s View of Claim Substantiation

As part of the ACI Advertising Claims Substantiation presentation, Ms. Hilfer asked David Strauss of Marketing by Strauss about the marketer’s perspective in creating claims.

Q. How do you decide what kinds of claims you want to make about a product? For example, you could make an overt superiority, effective alternative, or comparative claim? What do you do to be sensitive to implied claims?

A. Great question. It starts with a deep understanding of your target audience. How aware are they of your product and the competitors’ products. What’s their perception of each offering? As a marketer, you don’t want to give a smaller competitor free advertising. My preference is to start with a claim that positions my product as the best in the category on the attributes most valued by prospects. If my market share is significantly below that of the major competitor, then naming them as part of a comparative claim might be appropriate.

Q. How do adapt for a global advertising campaign? Do you consider different values and which claims will sell better in different countries?

A. Absolutely. There could well be a different set of cultural norms that affect how consumers in that country will view your product and your claim. For example, while it’s not a claim, per se, Diet Coke as we know it was launched a Coca-Cola Light in Germany and other European countries.

Q. When do you typically get legal involved in evaluating a claim?

A. Legal should be involved as soon as there’s a proposed claim to review. As you noted, the specific timing or point of interaction will vary based on an organization’s process and structural dynamic.

Q. How do you balance legal versus business risk in your own role as a marketer? What do you look for in terms of your lawyer’s understanding of both?

A. While my preference is to have the business stakeholder assess the business risk and legal stakeholder assess the legal risk, I’m certainly open to hearing any business risk articulated by the lawyer as long as he/she clearly understands the difference. In the end, the business side should weigh all the risks and make a decision as long as the legal risks are minimal.

R&D’s Perspective on Advertising Claim Substantiation

Ms. Hilfer also explored the processes that research and development teams use to substantiate advertising claims with Bart Briggs, Senior Engineer Engineering Excellence at Newell Brands.

Q. Which comes first the claim or the product testing?

A. Typically, the marketers identify an intended claim before R&D invests time, money, and project resources in testing to substantiate a claim. The claim will likely need adjustment after testing, when it may be discovered that the product is either under or over-performing. The cost of a mistake can be extremely high, and so marketing, legal and R&D must agree upon the validity of claim.

Q. Do you ever use enhanced testing of any kind, for example, for an overt superiority claim versus an effective alternative claim? What do you do to screen for implied claims?

A. We generally try to avoid superiority claims since 85% of the market needs to be beaten to make the claim. This requires a continuous cadence of testing since markets are constantly changing – i.e. you can be superior in one quarter and inferior the next. If implied claims are made, we ensure that there are enough escape words that it can’t be confused with an explicit claim. We also strive to capture the logic for the implied claim in any testing we conduct.

Q.How do you simulate real life product conditions in testing? How do you figure out what those are?

A. In my experience, humans are the least effective sensors – they typically cost the most to use and provide unreliable readings. For instance, on a recent food project, we had a user group judge the taste of a particular food type after preservation. In many instances, the group perceived a larger difference in the blind control than either of the two products that were being compared. However, marketing still pushed back several times on whether we could use the difference between the products, neglecting the fact that the groups perceived a larger difference for the blind control than actually existed. Legal, marketing and R&D finally came to consensus to remove the language for direct comparison and changed to a loosely worded implied claim with plenty of scientific backing.

Q. When do you typically get legal involved in evaluating a claim?

A. Legal, marketing, and R&D must all be in alignment before advertising claims are disseminated. By doing this, we avoid any allegations of intentionally shirking FTC compliance. Any time a safety issue is logged from our customer care team, or any time a competitor challenges a claim, the legal team becomes more deeply involved.

Hot Topics In Advertising Claims Substantiation

In 2017, we saw investigations or challenges related to certain types of claims repeatedly. At ACI’s Advertising Claims Substantiation conference, wide consensus held that these are likely to be hot topics for 2018: